The Havoc Of The "Standard" Release In Employment Law And Human Rights

What is a "standard release"?

Releases are agreements where one party agrees to release another party from an actual or potential liability. Releases are used frequently in the settlement of employment law and human rights disputes. Most releases contain similar kinds of terms, but some are significantly broader in scope than others.

This article seeks to cast daylight on the employee's perspective about the sorts of releases I typically see in employment law settlements. It also seeks to persuade you that it is problematic to refer to the commonly-used forms of release as "standard", because many of the clauses in these documents matter to both employees and employers, and referring to them as "standard" is dismissive of the significance of these clauses. The clauses matter in the sense that employers want to shut down liabilities extending far beyond the instant dispute, and sometimes go further into imposing liability on employees; whereas, employees want neither of these things. Employees usually want releases to be narrower than that.

To set the stage, I need to point a few things out. If a matter does not settle and ends in a court or tribunal judgment:

Neither party will be required to sign a release in order to get paid;
The resolution will probably be a written decision, and it will probably be published online (not private);
The employee will likely not have much restriction on their future behavior;
The employee will be able to say nasty things about the employer to whomever they please, provided they don't cross the line into defamation;
The employee may still be able to sue the employer for any number of other claims that do not relate to the subject of the judgment, including employment standards, human rights, and other civil claims related to employment.

A typically-used release clears up all of these concerns for an employer who settles prior to a judgment. These releases bestow many benefits on employers that they would not otherwise be able to obtain.

In negotiating settlement terms, employer legal counsel will often claim their proposed release is "standard". This statement is not untrue, in the sense that the broad releases proposed by employer counsel are commonly proposed, and yes, often accepted. However, they are not always accepted and are not normally required to be accepted.

In some circumstances, when the parties cannot agree on the terms contained in the release, courts and tribunals are called upon to determine whether there is an agreement at all, and if so, what the terms of a release should be. The results vary. Sometimes a court or tribunal will impose a specific form of release suggested by a party. This can happen where a release was discussed and there was an (arguable) actual agreement on the specific release or terms it contains. However, sometimes they are imposed on the basis that the suggested release is a "standard" or customary release, or that the sorts of clauses found in common releases are implied in the circumstances of a given case.

It seems unusual and unfair to me that a specific release or terms covering more than the real dispute should ever be imposed on parties that have not explicitly agreed to that specific release or those specific terms.

The Usual Causes of Release Disputes, Explained

As noted, the settlement of an employment law or human rights matter will usually involve the employee signing a release. However, the content of potential releases is not usually discussed in detail until the parties appear close to settling the dispute on a dollar figure.

I think the reason releases tend not to receive much serious consideration prior to this is that the parties are focused on winning or resolving the instant dispute right up until it seems close to resolution.

When matters do get close to resolution, the parties take a sober second look at everything again, and the potential of a final result sets in. The specific terms of settlement often become much more important to the parties at that time.

Different legal counsel will communicate offers and responses differently. Additionally, sometimes one party will not include reference to a term they thought went "without saying". Either situation can result in the parties later taking different positions on whether there is a settlement agreement at all, and if so, what the terms are.

Offers contain a wide range of phrasing. Some common examples include: "$x in exchange for a release in a form acceptable to my client", "$x in exchange for a global release in favor of my client", "$x in exchange for a release in our standard form", "$x in exchange for a mutually acceptable release", "$x in exchange for a release in a form acceptable to both parties", "$x in full and complete satisfaction of the claim", or even simply "$x in exchange for withdrawal of the claim without costs".

Some phrasing of the offers and responses is clearer than others, and honest differences in opinion arise regarding the precise terms of a settlement agreement, if any.

When the parties dispute the terms of the settlement release, a court or tribunal has to decide if a settlement has even occurred, and if so, whether they will impose the release proposed by one of the parties.

Caselaw on Release Disputes

The selection of caselaw below explores some of the principles and reasoning courts and tribunals have used to resolve disputes regarding the terms of a settlement agreement or release. Reviewing this summary may assist in better understanding the last half of this article.

The overarching and important principle at the heart of this article is that parties are not normally forced to agree to anything by a court or tribunal. They either agree on the terms (and settle), or they don't.

In Norwich Union Life Ins. v MGM Insurance Group Inc.¹, the Manitoba Court of Queen's Bench stated:

"...no party is bound to execute a "...no party is bound to execute a document...which contains terms or conditions which have not been agreed upon and are not reasonably implied in the circumstances".

Fieguth v Acklands Ltd.² was a wrongful dismissal case involving a disputed severance settlement where the parties had not expressly agreed to the terms of a release. The defendant employer's counsel provided a form of release that contained covenants and indemnities that the court later said had been "excessive and unnecessary". The plaintiff employee argued there was no settlement because: the terms of release had not been agreed upon, the method and timing of payment was not determined, the income tax implications had not been determined, and there was no agreement on indemnification.

The Court in Fieguth considered the plaintiff's no-settlement arguments and found as follows: (1) it was an implied term of the agreement that the employer was "entitled to a simple release of the claim for wrongful dismissal which had been put forward", (2) the method of payment did not need to be agreed to, and timing could be implied to be "reasonable", (3) the income tax treatment formalized in the proffered release appeared to be correct in law, and (4) since the defendant had not stipulated an indemnity agreement in its offer, it was "not entitled to anything of the kind". The Court imposed an agreement on the parties based on the above, but not based on the release specified by the Defendant.

In Fleming v Fleming³, a matrimonial dispute, the wife made a narrow offer to settle an application in exchange for a monetary payment, which was met with an agreement on the monetary amount but included a release that would have abandoned any and all of the rights the wife may have had. The BC Court of Appeal concluded that since there was no evidence of what other potential claims the wife had, the "potential gulf" between the two settlement positions was too broad, and the parties had not come to agreement on all material terms of the settlement.⁴

In Millet (Town) v Tessier⁵, there was a settlement offer, and acceptance by the plaintiff was communicated "subject only to the confidentiality clause allowing discussions among his children for the purposes of their investment / holding companies". A few days later, plaintiff counsel advised he was instructed to "withdraw his counteroffer". The Alberta Court of King's Bench ("ABKB") found that the confidentiality clause was an essential term in this case, and since there was never agreement on that point there was no settlement. The Alberta Court of Appeal found there was no reviewable error with the ABKB decision.

In Therien v Arbor Medical Services Inc.⁶, a self-represented complainant employee and the respondent employer had participated in a voluntary Alberta Human Rights Tribunal Dispute Resolution ("TDR") process. The complainant made a verbal offer that was accepted by the employer. The member of the Commission conducting the TDR had the parties discuss settlement terms after that verbal offer was accepted, and it was understood that a release would be signed. The Commission member was under the impression that the parties had agreed to terms. The paperwork was not prepared yet at that point and so was not reviewed at the TDR. Afterwards, legal counsel for the Director and legal counsel for the employer came to an agreement on the contents of the written release. This was apparently without the input of the complainant. The complainant then refused to sign that release. The complainant did not deny there was an agreement but said she may have been ill at the time (without evidence) and said she thought that going to "court and being public" instead of settling would benefit future employees. The Tribunal found there was an agreement in place which included that specific release, and if the complainant wanted the settlement money, they were required to sign it. In other words, they imposed that specific release on the complainant, noting "lack of publicity is not a reason to overturn a validly reached settlement".

In Patenaude v HMK Alberta (Service Alberta)⁷, a self-represented complainant employee attended a human rights TDR with the respondent employer. Legal counsel for the Alberta Human Rights Director of the Commission had carriage of the complaint. The parties came to a verbal settlement in the TDR and agreed the complainant would sign a release in the form provided by the employer. The paperwork was not prepared at that point, so it was not reviewed at the TDR. Afterwards, the Director's legal counsel and employer's counsel came to an agreement on the contents of the release. Like in Therien, this was apparently without the input of the complainant. Legal counsel for the Director provided the release to the complainant. The complainant did not respond or suggest changes for several months, so the employer sought to have the Tribunal enforce the settlement. The complainant's position was that the release was too broad, but he did not request specific changes. The Tribunal found there was an agreement in place which included that specific release, and if the complainant wanted the settlement money, they were required to sign it. So in Patenaude too, the Tribunal imposed a specific release on a complainant.

In Desta v Schnitzer Steel,⁸ a self-represented complainant attended a human rights TDR with his employer. Legal counsel for the Director of the Commission was not present. The parties came to a verbal settlement in the TDR, and the complainant was told that once he signed a release it would be held in trust until after he was paid the settlement. During the TDR, but after the verbal settlement was reached, the complainant brought up a separate trespass related issue which was apparently not agreed upon. After the TDR, legal counsel for the employer provided settlement documentation to the complainant to sign. The complainant refused on the basis that he wanted to be paid first, and because he was awaiting clarification regarding the trespass-related issue. The Tribunal found that the trespass-related issue was not part of the settlement. The Tribunal found that the specific paperwork proposed by the employer reflected the verbal agreement and imposed it on the complainant like in Therien and Patenaude. This decision does not state what the exact terms of agreement were, or what was contained in the release.

I cannot say what exactly the releases considered in Therien, Patenaude and Desta looked like. However, it would be very uncommon for employer counsel to propose a release which does not contain at least some of the problematic terms I identify below. It also does appear to me that at least one such problematic term was in dispute in each of those cases, and all three of those problematic terms will typically be present in a release proposed by employer counsel.

Significant Release Concepts and the Employee Perspective

Here, I will describe some terms that are often found in releases used to settle employment law and human rights disputes, and why they are significant to employees. I will also identify concepts and clauses that employees have difficulty with, in my personal experience of advising on a very large number of litigation matters and settlements.

General Release. Usually releases are understood to "release" the employer from any liability it has or might have to the employee. However, settlements are usually reached regarding a specific dispute, even though it is common for an employee to have more than one potential legal action or complaint against an employer. Employees sometimes assume a release will only cover the immediate dispute that's been raised between the parties, and are sometimes upset when they discover the proposed release is much broader than that.

Releases Usually One-Way. Usually releases are one-way, in the sense that an employee is releasing an employer, but not the other way around. The fact that the employer is not usually releasing an employee is something employees often find troubling, and in some cases they will not agree to a one-way release. Especially a broad one.

One reason employees do not like broad one-way releases is that these releases cover potential liabilities far exceeding the main dispute and impose new liabilities on them. They find this troublesome because they have been, until this time in the process, focused on the main dispute and not the precise form the settlement will take. They will not usually have appreciated until this point that the employer will probably be reluctant to settle at all unless they can cover off their broader potential liabilities and more.

I will also hazard a guess that sometimes an employee may have secretly intended to retain other grievances in abeyance as a sort of insurance policy to make sure their former employer will treat them honorably post-settlement. A broad one-way release would ruin this theoretical insurance policy for anyone with this in their mind.

Employees concerned about broad one-way releases seem to be more amenable to agreement when employers offer "mutual releases" of liability, so that the employee can have some protection in exchange for giving up all rights.

Tax-Indemnity. Releases almost always contain tax indemnity clause which states that if the employer did incorrect income tax remittances to CRA for the employee, the employee is on the hook for any assessed taxes for all prior payments, and any penalties imposed on the employer by CRA. Even without such a clause, employees are required to pay their personal income taxes. But without this clause, employees would not normally be responsible for some of the tax liabilities an employer can face for incorrect tax remittances or improper remittance practices during employment, and the employer is obviously in the best position to prevent these liabilities from arising in the first place. These clauses are very one-sided and can significantly alter the respective rights and liabilities of the parties. Employees are often uncomfortable with them at first. However, after having received legal counsel and having considered that there are valid reasons why any employer may want the tax indemnity, they will usually agree to some form of this.

Non-Disclosure. Releases usually require that the employee agree not to disclose the terms of settlement to anyone. Employers will rarely budge on this term being in the release, because the confidentiality of the settlement terms can have significant perceived or actual value for them. However, this clause is also very significant to employees because of the context of these disputes. The context is that employees start lawsuits when they feel aggrieved in some way. At some point they usually come to terms with the idea of settling, but they sometimes do not assume that non-disclosure will be required, or have not fully digested the idea of non-disclosure until the prospect of settlement is right in front of them. When they have finally thought about the idea of non-disclosure, they are sometimes upset about it, because to them it seems like the employer is getting away with something ("sweeping everything under the rug" is a phrase I've heard a number of times), or is getting something for free at the expense of the employee's otherwise free speech.

Non-Disparagement. Releases often require that the employee cannot defame or disparage the employer or other employees of the employer. Defamation involves saying false things and is already illegal, so that part is not a surprise or an issue. Non-disparagement, however, generally means that the employee cannot say negative things about the employer or its people even if those things are true. This requirement is often a surprise to employees who are advised of this meaning by their lawyer, and they are sometimes not happy when they learn about it. In some cases, these employees are only willing to agree to this clause when they are offered higher settlement dollar amounts. In other words, while this clause is obviously significant to employers, it is also clearly significant to many employees. Also, unlike defamation, non-disparagement imposes an obligation and liability on an employee that would otherwise not exist at all. Without a non-disparagement clause, employees are allowed to speak the truth about their experiences at their former employer, with some exceptions, even if those experiences cast the employer in a negative light.

Penalties for Breach. A release is a contract. Where an employee breaches the terms of a release, the employer will usually have the right to sue them for damages for breach of that contract. However, employers are not always content with this general remedy, because they would need to prove the breach caused them to suffer damages and that can be costly and improvident. As a result, employers sometimes put clauses in releases which impose specific liabilities on the employee if the employee breaches a clause like non-disparagement, non-disclosure or confidentiality. The specified liability could range from $5,000 to the full amount of the settlement. These will usually state that the damages are "liquidated damages." These will always state they are "not a penalty", because a true penalty may not be enforceable at common law. But, however "penalty"- like they may seem, they should be taken seriously as potentially enforceable because severe damages clauses have been upheld by courts. When enforced these can impose huge liabilities on an employee. In my respectful opinion, a clause like this must be negotiated and could never fairly be implied in a severance settlement because:

Usually, the main thing one of these settlements is about, is the employee agreeing to accept a specific amount of money in exchange for stopping a lawsuit or giving up their right to sue the employer over a specific dispute (i.e. wrongful dismissal);
These penalty clauses are a significant departure from the common law treatment of damages where no specific damages clause exists. At common law, if the parties have not agreed to a specific remedy for the breach of a contract, the courts usually require the parties to prove actual damages flowing from the breach. There is a very good reason for this: damages are not meant to be a windfall; damages are meant to help make-whole a party that has been aggrieved by another, and nothing more. If significant damages were always presumed, there would be a very strong incentive to sue for even minor breaches that caused little or no actual harm. I think most would agree that situation would not be in the public interest. Further, a release without this clause still offers the ordinary common law protection to the employer: if breaches have caused significant harm to an employer, the employer should likely be able to get a significant damages award from a court against the employee, even without a penalty clause in the release.

I'll acknowledge that it does seem to be rare for employers to sue employees for breaches of releases, with or without penalty clauses, unless the breaches are severe. It is more common for employers to start with a cease-and-desist letter which threatens a lawsuit if breaches do not stop. But employers do sometimes sue employees over breaches of releases and do sometimes rely on penalty clauses.

The operation of these clauses in a release can seem very severe in some cases. For instance, sometimes a penalty clause will be triggered by any breach of that release's confidentiality, non-disclosure or non-disparagement clauses, and will require repayment of the entire settlement.

Conclusion: The Standard Release

The terms of a release matter, particularly where they go beyond simply preventing a lawsuit over the same facts. Virtually all typically-used releases go way beyond that.

One expression of the test for why a court or tribunal should not imply a specific settlement term is that the impugned term is "material". In my view, most of the common clauses I identify earlier in this article are important ones for both employers and employees to understand before they enter an agreement. They are terms with significant impacts on the rights of the parties. They are material terms.

I am not saying employers should not be entitled to broad protection in the context of an employment settlement. To the contrary, I think it is the job of employee-side legal counsel to force their client to consider an employer's perspective and why almost any employer would have trouble settling without certain protections in place.

However, I hope I have persuaded you that: the fact that the proposed release is one that is commonly used should not automatically cloak it in the moniker of the "standard" release. I think that language implies a pre-determination of objective reasonableness. I think it also implies that if broad settlement terms covering more than the real dispute are proposed by one party, and they seem objectively reasonable to an adjudicator, this would be a basis to impose those specific settlement terms on an unwilling party. Respectfully, I think any reasoning along these lines will tend to improperly conflate the proper question of what was actually agreed with an arguably irrelevant question of what reasonably could have been agreed.

These documents are common. Sure, even standard. But the depth of terms contained in these documents makes them comprehensive settlement and indemnity agreements, not merely "releases".

So what is a standard release? It turns out this is the wrong question. The right question is: is there a standard release? I respectfully suggest that the answer should be no.

Footnotes

1. 2003 MBQB 282, at para 18.

2. 1989 CanLii 2744 (BCCA) at paras 21-22

3. 2020 ABQB 85 ["Fleming"]

4. Fleming at para 23.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.